TSUGAMI CORPORATION

The machine tool industry is highly susceptible to economic fluctuations, and if an unexpected and rapid market contraction occurs, it could affect the Group's production, business performance, and financial condition. The Group strives to mitigate such impacts through highly efficient management, including fixed cost reductions, but there are limits to how well it can respond to sudden changes.

Castings and steel materials, the Group's primary raw materials, are significantly affected by exchange rates and international supply-demand conditions, and price increases push up production costs. Rising raw material prices could have a direct adverse effect on the Group's business performance and financial condition.

Since exports are conducted in principle in yen, the direct impact of exchange rate movements is limited; however, in the event of a sharp appreciation of the yen, there is a risk of receiving requests for price reductions from overseas distributors and users. In addition, as the business weight of the Chinese subsidiary expands, fluctuations in the renminbi exchange rate are increasingly likely to affect consolidated business performance and financial condition.

The Group manufactures and sells machine tools in China and India, and conducts sales and after-sales service operations in South Korea, Thailand, Germany, and other countries; deterioration in the political situation or changes in laws and regulations in these countries could affect production, business performance, and financial condition. In particular, dependence on the Chinese subsidiary is high, and the impact of geopolitical risk and regulatory changes is significant.

While the Group actively pursues new product development and quality improvement, unexpected accidents or service defects, if they occur, could lead to product recall and compensation costs as well as loss of customer trust. Quality issues could not only affect business performance and financial condition but also damage brand value.

The Group seeks to protect its intellectual property rights through patent applications for its proprietary technologies; however, if intellectual property rights are infringed by other companies, or if invalidation claims or infringement injunctions are filed against patents held by the Group, litigation costs and the loss of technological competitive advantage could affect business performance and financial condition.

The Group conducts business with a wide range of customers, including those in the electronics/information and telecommunications-related industries and the automotive industry; if contract changes, deteriorating business performance, or credit risk materialize at a major customer with substantial transaction volume, it could have a material impact on the Group's sales and business performance. Although the Group pays close attention to managing customer credit risk, it may be difficult to respond to sudden changes in the business environment.

The Group's principal manufacturing sites are concentrated in Niigata Prefecture domestically and in Zhejiang Province, China and Chennai, India overseas; in the event of a large-scale earthquake, flood, or other disaster, product supply could be halted or delayed. Various risks exist, including computer viruses and terrorism, and the Group's global site deployment brings both risk diversification and exposure to a variety of risks.